Is MP Materials Stock the Next Nvidia?

Right now, in your smartphone or laptop, is an incredibly strong magnet made from rare-earth metals. In fact, wherever there is a motor or speaker near you, whether it's a car door or a kitchen blender or an electric vehicle (EV), there's very likely a strong magnet in it.

The sheer ubiquity of these magnets makes them a critical component of today's world. And MP Materials (NYSE: MP), with its rare-earth mine in Mountain Pass, California, is one of the few U.S. companies capable of capitalizing on their wide use.

A 100-ton haul truck at the edge of MP's Mountain Pass Mine in California. Image source: MP Materials (Michael Tessler).

The necessity of MP's product, along with the strong demand expected of it, makes it a kind of mining analogue to a tech company that pretty much everyone knows -- Nvidia (NASDAQ: NVDA).

Indeed, MP Materials could very well be the next Nvidia, if by that we mean a company supplying indispensable components to pretty much every modern innovation. At the same time, the differences between the two are just as important as the similarities, if not more.

How MP Materials resembles Nvidia

On the surface, MP and Nvidia look worlds apart. One digs for critical metals, while the other designs chips. The similarity, however, isn't in what they make. Rather, it's how scarcity has propelled each to the front line of their respective industries.

For Nvidia, scarcity is tied to its dominance in chip design, which has become nearly inseparable from the development of artificial intelligence (AI). Few companies come close to matching the computing power of Nvidia's chips. Not only has this caused supply constraints in the past, but it has also sent Nvidia's revenue soaring.

MP Revenue (Annual) data by YCharts.

Scarcity, for MP, is much more materially grounded. Literally: The Mountain Pass mine is one of the only scaled sources of rare-earth metals in the United States. And because China has a firm hold on the rare-earth metals MP mines, it causes production outside of China to become even more limited.

That scarcity is one reason MP stock has soared over 250% on the year. It's also why the Trump administration invested $400 million in MP, as it sees U.S. independence from Chinese imports as inextricably bound to MP's future.

MP is a different animal than Nvidia

MP and Nvidia have some market similarities, but we need not artificially stretch the comparison.

Nvidia is a high-margin tech company that's riding multiple trends, like data centers and AI. MP, on the other hand, is a mining company with heavy capital expenditures and vulnerability to commodity cycles.

Just look at the free-cash-flow difference between them.

MP Free Cash Flow data by YCharts.

Of course, Nvidia has already hit its stride. MP, on the other hand, is still building its second magnet factory (10X Facility), which, when finished, should greatly help revenue growth and free cash flow.

In other words, Nvidia's recent surge in revenue could be past tense at around the same time that MP's sales are starting to soar.

Still, execution risks abound, with MP's ability to scale magnet production being at the top of the list. It also has a rich valuation, despite being unprofitable.

To match Nvidia's valuation, MP would need to climb about 44,900% from today's price, which is a tall order for a mining company. Don't get me wrong: MP certainly has potential to grow from here, but a trillion-dollar valuation likely isn't in its near future.

Steven Porrello has positions in MP Materials and Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.